Institutional performance of Payments for Environmental Services: An analysis of the Costa Rican Program

In the growing literature on “payments for environmental services” schemes, so far not much attention has been paid to their institutional dimensions when assessing their performance; this is especially true of the Costa Rican case. This paper provides an analysis of the institutional performance of the Costa Rican Payment for Environmental Services Program (PESP). While recognizing its low additionality, our analysis highlights its positive long-term and indirect environmental impacts via the discontinuation of agriculture and institutional interplays. It also recognizes social impact as a secondary objective of the program, concluding that its current social performance is poor. However, it concludes that the program has higher sustainability, due to its strong legitimacy, than Coasean analyses suggest by focusing solely on its financing. Our analysis shows the risks and limitations of Coasean recommendations that focus on improving PESP cost-effectiveness. It proposes instead to strengthen the program's strategic management, to give more importance to other modalities than the forest protection one and to improve other institutions of the forest sector. This includes stricter enforcement of the law prohibiting deforestation.